Second lawsuit filed to block Kroger’s acquisition of Harris Teeter

A second lawsuit has been filed seeking to block The Kroger Co.’s acquisition of Harris Teeter Supermarkets Inc. (NYSE:HTSI)

The Westmoreland County Employees Retirement Fund, based in Pennsylvania, filed a class-action lawsuit and derivative complaint in Mecklenburg Superior Court on Aug. 1.

The legal action names all 11 members of Harris Teeter’s board of directors as individual defendants.

That list includes Thomas Dickson, chairman and chief executive of Harris Teeter; John Belk, president and chief operating officer of Belk Inc.; John Cato, chairman, president and chief executive of The Cato Corp.; and Anna Spangler Nelson, chairman and executive vice president of Spangler Cos. Inc.

Additional defendants include Harris Teeter, Cincinnati-based Kroger (NYSE:KR) and Hornet Acquisition Inc., a wholly owned subsidiary of Kroger that's being used to facilitate the merger.

The lawsuit questions whether the individual defendants “breached their duties of due care, loyalty and good faith” with respect to the Harris Teeter and its shareholders.

It alleges board members failed to properly value Harris Teeter or engage in a negotiation process that yielded the best price reasonably available. Board members also failed to protect the shareholders’ interests, putting their personal interests firsts, it contends.

That resulted in an acquisition agreement that was unfair to Harris Teeter, the suit says. It argues that the board failed to take adequate measures to ensure Harris Teeter’s public shareholders are properly protected and receive fair value for their shares.

It contends the $49.38 per share is “woefully inadequate in light of Harris Teeter’s strong financial position and the complementary assets which a combination with (Harris Teeter) would bring to Kroger.”

It notes the merger represents a premium of 21.27 percent from the time Harris Teeter confirmed it was considering a possible sale of the company. That’s “significantly below the average premium for comparable transactions in the past three years,” the suit states.

The suit also says Harris Teeter has been irreparable harmed by the “onerous and coercive terms” that will prevent competing offers for the company.

That means shareholders will not receive fair value for their shares, according to the suit.

The lawsuit also asks the court to prevent board members from taking action that will block their ability to maximize value for Harris Teeter and its shareholders.

It asks the court to award damages and other expenses and attorney fees.

This is the second class-action suit filed to block the acquisition. The first was filed on July 16 on behalf of a group of Harris Teeter shareholders.

That complaint alleges that members of Harris Teeter’s board breached their fiduciary duties to shareholders and Harris Teeter, and that Kroger Co. and Hornet Acquisition aided and abetted that breach.

Harris Teeter addressed the lawsuits briefly in a U.S. Securities Exchange Commission filing on Thursday.

It notes the outcome of the legal action is uncertain.

“The company and the company’s board of directors believe that the claims asserted in each suit are without merit and intend to defend themselves vigorously against the claims,” the filing states.

Harris Teeter declined to comment further on the legal action. Kroger did not respond to a request for comment.